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Appraisal Update – January 2019

Special request questions for DMBA Members?If any of you have questions during the month, please feel free to email me or call and I will be glad to personally respond. If the topic is of enough interest, I will be glad to expand it and include it for the next monthly update. Thanks,

Happy New Year 2019!! Wow another year and new changes. In my many years of appraisal practice we have observed the cycle of price increases and price declines. Our last few years have enjoyed wonderful real estate price appreciation unlike any in the past few decades. That is price appreciation without the 800 lb. Gorilla called “inflation” consuming all the “net gains” experienced during the Carter years. Our current and best rounds of appreciation in DFW have been in the 6-10% range at various points and locations and only a 1-3% inflation rate. This means true wealth increases have been enjoyed by the owners of realty.

By mid-2018 we were clearly seeing a market slowing and it has continued through the start of 2019. Increasing supply of housing has resulted in longer market times and greater pressure on the seller to negotiate than we saw earlier in the cycle. Yes, early in the cycle, say 2014-2017 multiple offers, bids above list price by competing byers and acceptance of houses in need of repairs or of inferior design, location were common. Current interviews with Realtors, builders and appraisers have all reported a slowing. However, I prefer to view it like this: . . . . . We have been speeding along at 90-mph in a 50-mph zone. Now, slowing back to the 50-mph limit, it feels and is slower and then you realize this is the normal speed! Many believe and all hope this is what we see in the current market, a slowing, back to a normal and healthy flow.

Warning! 1004MC

During the appreciation cycle we have experienced the weakness in the 1004MC. It was not designed for low supply markets, contracts bid above list prices and quick sale times. So Fannie may recently, and VA just announced they will allow it to be discontinued. However, these is a caveat that the appraiser must still analyze and report on market conditions. “Hmmm . . . “ so here is the warning. A good appraiser will still report on the market conditions without the 1004MC. However, the 1004MC is the Fannie Mae standard and while an inferior form it has their blessings. During the market crash of 2007-08 to 2010-12 we watched the Fannie Mae review departments enforce “buy back” procedures on lenders when they judged the appraiser had not properly reported data; one area was in seller concessions. So my recommendation is to stay with and maintain the 1004MC use during this market slowing to make sure the landing does not go deeper than anticipated and leave the Appraier and or the lender in a precarious situation.

Will 2019 see prices increases? Yes, per Corelogic. See the following article. >>>>>>>>

CoreLogic: Home prices will rise in 2019

American home prices to rise by almost 5% come September 2019

In 2018, the principal-and-interest mortgage payment on the median-priced home climbed by more than 16%, according to the latest data from CoreLogic.

CoreLogic reports that although the median home price rose by less than 6% over the past year, prospective buyers are in for a rude awakening come 2019.

According to the company’s forecast, American home prices will rise by almost 5% year over year in September 2019. In fact, it claims that some mortgage rate forecasts point to mortgage payments climbing to more than 11%.

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“A consensus forecast suggests mortgage rates will rise by about half of a percentage point between September 2018 and September 2019,” CoreLogic writes. “The CoreLogic HPI Forecast suggests the median sale price will rise 2.7% in real, or inflation-adjusted, terms over that same time period.”

CoreLogic says based on these projections, the real typical monthly mortgage payment would rise from $912 in September 2018 to $994 by September 2019. This is an 8.9% year-over-year gain, which equates to a nominal year-over-year gain of 11.3% in 2019.

That being said, the latest CoreLogic Case-Shiller report indicated that although home prices were slowly increasing, most cities across the country saw a boost from the prior year.

“The combination of higher mortgage rates and higher home prices rising faster than incomes and wages means fewer people can afford to buy a house. Fixed rate 30-year mortgages are currently 4.75%, up from 4% one year earlier,” S&P Dow Jones Indices Managing Director and Chairman of the Index Committee David Blitzer said. “Home prices are up 54%, or 40% excluding inflation, since they bottomed in 2012. Reduced affordability is slowing sales of both new and existing single-family homes.”